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Straight Talk ***************************************************** April 22, 2008 ***************************************************** Is It Too Late To Buy Gold? I’m just back from the 10th Annual “Investment U” conference in St. Petersburg, Florida, where I’d been asked to serve as Master of Ceremonies. I was delighted to accept, since it gave me a chance to see many old friends, meet some new ones, and introduce a pretty stellar line-up of speakers. I must confess it was also fun to tell some of the more long-winded orators that it was time to stop. But that may not be completely fair; I’ve learned over the years that you have to tell just about everyone when his or her allotted time to speak has ended. Most appreciate the notice and stop on time. It’s just a small handful that ignores the clock (and me) and, like old man river, just keeps rolling along. The final speaker of the conference was Rich Checkan, VP at one of my favorite precious-metals firms, Asset Strategies International in Rockville, Maryland. The title of his talk was, “Is It Too Late To Buy Gold?” It was obvious to everyone in the audience that his answer was going to be “no.” After all, if he said “yes,” there wouldn’t have been much point in continuing his speech, would there? “Yep, it’s too late. We’re not selling any more of the golden stuff and you shouldn’t buy any. We’re going to pack it in and go home. You might as well, too.” No, there was not a chance you’d hear that message. But Rich was far from the only person at the podium who was positive about the prospects for the Midas metal – and for silver and platinum, too. Even though gold was just coming off a $100 per ounce correction, everyone who discussed precious metals was equally upbeat. I took a lot of notes at a lot of the talks. But no one had my pen going faster than Pamela and Mary Anne Aden. These two sisters, Americans by birth but residents of Costa Rica for the past three decades, have earned worldwide acclaim for the accuracy of their commentaries. They are both technical analysts, which means they love charts of price movements. But they also use solid fundamentals to underpin their work. The sisters told the crowd that gold is not just in an uptrend; it is in a mega uptrend that will last for many more years. There are many reasons for this, they said, including increased demand around the world and the difficulty in increasing supply. (It takes many years, and many millions of dollars, to get a new gold mine into production.) But the overwhelming fundamental reason that the price of gold (and other commodities) will continue to go up is that the value of the dollar will continue to go down. The dollar has lost 81% of its value just since the early 1970s – which just happens to be the last time it was redeemable in gold. Now, there is nothing to keep Washington from printing all of the dollars it says it needs. And ladies and gentlemen, Washington is going to need a lot of dollars over the next few years. Here’s a factoid that shocked even me: Just the unfunded liabilities for Social Security, Medicare, and other promises Uncle Sam has promised to pay out in the future come to over $500,000 per family. That’s half-a-million dollars for each and every family in this country. Are you ready to have your taxes go up that much? But it’s not just future promises to pay. There’s the war in Iraq, which has cost over $500 billion thus far. The final tally (if there ever is one) could be over $3 trillion. Add to that the huge strain on the financial system we’re already seeing. A few more “rescues” of banks, brokerage firms, or mortgage companies, and we won’t be talking about billions in bailouts. No, the cost could easily pass a trillion. And don’t forget the interest on the debt we already have. Please don’t say “we owe it to ourselves.” We don’t. We owe it to central banks and governments around the world. Today, interest rates are artificially low, as the Fed tries to keep our economy from going into the toilet. So interest on the national debt “only” amounts to a few hundred billion dollars a year. But what happens when interest rates rise again, as they must, and the debt keeps growing? What will a trillion-dollar-a-year expense for interest payments do to the federal budget? Ben Bernanke’s apocalyptic warning may come true: The government may have to drop bails-full of money out of helicopters. As Mary Anne Aden said, “The evidence is overwhelming that more inflation is coming. That’s why we believe these mega rises in metals and commodities will last for many more years.” This doesn’t mean there won’t be corrections along the way, of course. In fact, the sisters think another short, sharp correction is very likely to occur between now and the end of summer. If it happens, they say, treat it as a gift – the chance to buy at even lower prices than you can today. How high will the metals go? The Adens were reluctant to even guess what the top might be. But they made it clear that they expect gold to at least double from here, to over $2,000 an ounce. While silver could do even better; it could triple to $50 an ounce or more. Where to Invest So okay, if you’d like to add some precious metals to your portfolio, what should you buy? Since everyone’s situation is different, it’s impossible to come up with one set of recommendations that’s appropriate for everyone. Happily, you know that, so you’ll take what follows and adjust it to your own unique circumstances. Pam and Mary Anne recommend dividing your portfolio into three parts – 40% for energy and natural-resource stocks, 40% for gold and silver (both physical metals and paper equivalents), and 20% in cash. By cash, they most emphatically do not mean the U.S. dollar. They are adamant that even your cash reserves (or at least most of them) should be in foreign currencies. Their five favorite ways to do this are all funds (four ETFs and one mutual fund) that can be purchased through any discount broker. Here are their recommendations, starting with their favorite: the Euro Currency ETF (FXE.NYSE), Australian Dollar ETF (FXA.NYSE), Swiss Franc ETF (FXF.NYSE), Japanese Yen ETF (FXY.NYSE), and the Franklin Templeton Hard Currency Fund (ICPHX.NSDQ). Let me interject here an alternative investment I like even better – the foreign currency CDs offered by my favorite banking institution, EverBank. This innovative firm offers CDs in a number of foreign currencies or even a combination of currencies. You can get a traditional bank CD in as little as a three-month term and earn local interest rates in that currency. Plus, because of the way they are structured, all foreign currency products are FDIC insured. (But note that you are insured against the insolvency of the bank and not against fluctuations in the value of a foreign currency compared to the U.S. dollar.) To learn more, go to everbank.com. Or call them at 1-800-926-4922 and say that Chip Wood sent you. Mention code 12252 so they’ll know you’re a Straight Talk reader. Okay, now about gold and silver. The Adens’ top recommendations are two ETFs I’ve mentioned before in this column – GLD for gold and SLV for silver. The two funds take your investment (and those of several million other folks) and buy bullion. Period. That’s all they do and they do it with very low expenses. The first trades on the New York Stock Exchange, the second on Amex. And again, both can be purchased through any discount broker. In a rising gold market, you can usually get even more “bang for your buck” by buying the shares of producing mining companies. Note the importance of the word producing. The vast majority of companies with “gold” in their name has never produced an ounce of the metal and never will. As my friend Rick Rule asks, “If you don’t have any gold, why should your share price go up just because gold does?” Here are the mining companies the Adens like best, again starting with their #1 pick and working down the list: Eldorado Gold (EGO.Amex), Agnico Eagle (AEM.NYSE), GoldCorp (GG.NYSE), PanAmerican Silver (PAAS.NSDQ), Hecla Mining (HL.NYSE), Yamana Gold (AUY.NYSE), and Silver Wheaton (SLW.NYSE). And, finally, for those of you who prefer to invest in mutual funds or ETFs for the diversification they offer, here are the Adens’ three favorites: Market Vectors ETF (GDX.Amex), U.S. Global’s World Precious Metals Fund (UNWPX.NSDQ), and U.S. Global’s Global Resources Fund (PSPFX.NSDQ). If you want to own some of the real stuff, an excellent source for gold, silver, and platinum bars, coins, and certificates is Rich Checkan’s company I mentioned at the beginning of this piece – Asset Strategies International. You can find them on the web at www.assetstrategies.com. Or call them at 1-800-831-0007 and tell ’em Chip Wood sent you. They’ve been taking excellent care of their customers – and delivering every ounce of metal they’ve promised – for nearly 30 years. One last idea. I’ve been having an interesting exchange with a Straight Talk reader who says he has three rules about gold: buy the best, pay cash, and take possession. And he adds, “Only if people have possession of their gold and bury it in their back yard can they thumb their noses at government. Remember, the biggest thief in life is government.” Yes, I rejoined, but there are other thieves as well. Let anyone find out what you’ve done and a nefarious neighbor or covetous cousin will be back there some night with a metal detector. “I’ve got the solution for that, too,” he said. “Scatter small pieces of metal around your yard. If you’ve got enough BBs, they’ll do the trick. They act like the chaff our planes dropped during World War II to confuse enemy radar.” Didn’t I tell you we have some very smart readers? If you’d like to keep up with the Aden sisters’ recommendations, you can subscribe to The Aden Forecast by going to www.adenforecast.com, or calling 1-305-395-6141. You’ll receive a detailed 12-page commentary each month (with enough charts to cross your eyes), plus a weekly update. At $58 a quarter, it ain’t cheap. But it could turn out to be the best investment you make this year. Finally, if you get the impression that I put my own money where my mouth is, you’re right. Natural resources represent by far the biggest part of my portfolio. And so far, I’m delighted with the results. But please don’t come digging up my backyard at midnight. There’s nothing there. This Week in History Sad to say, the bad guys made more headlines in history this week than the good ones. Let’s start with April 20, 1889, when a particularly heinous character named Alois Schicklgruber came into the world. You’ll know him better by the pen name he adopted later, Adolf Hitler. As the world knows to its sorrow, he went on to become one of the most murderous tyrants in history. Strangely enough, although Hitler was a left-wing extremist (the very name of his movement, Nazi, is a contraction for “national socialism”) somehow the left has managed to turn the word into a pejorative against the right. It sure is easier to sell a lie when you dominate the mass media, isn’t it? (Not to mention most seats of higher leaning … er, learning.) If I had a buck for every time my colleagues and I have been called Nazis or fascists, why … I’d buy a lot more gold. More than 100 years after Hitler’s birth, two demented high school students in Littleton, Colorado chose the anniversary of their hero’s birth to conduct the Columbine High School massacre. The day before Hitler’s birthday hasn’t been great, either. It was on April 19, 1993 that Attorney General Janet Reno ordered the slaughter to begin at a religious retreat in Waco, Texas. Two years later, on April 19, 1995, Timothy McVey (and comrades?) blew up a government office building in Oklahoma City, Oklahoma. If we make it to the weekend without another fearsome incident somewhere, let’s give thanks. Until next time, keep some powder dry. Chip Wood
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Straight Talk is a weekly commentary written by Chip Wood.
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